BRICS+ De-Dollarization: Economic or Geopolitical Problem?

October 20, 2023 Topic: BRICS Region: Global

BRICS+ De-Dollarization: Economic or Geopolitical Problem?

The United States must continually prevent BRICS+ from coalescing into a geopolitical competitor.

To counter American financial dominance, the recently expanded BRICS+ group has explored potential means of de-dollarization. This would entail reducing the number of transactions made in dollars by lending in local currencies to member countries.

However, rather than seeking to be a geopolitical counterpoint to the U.S.-led “rules-based world order,” the BRICS+ grouping was initially conceived as an economic bloc in 2001 when Goldman Sachs economist Jim O’Neill proposed that Brazil, Russia, India, and China would dominate the global economy by 2050. In the early 1980s, the combined economies of the five BRICS+ nations represented 16 percent in terms of purchasing power parity (PPP), and by 2022, this figure had increased to 32 percent of global GDP. In contrast, the G7 declined from 46 percent of global GDP to 30 percent during this period. As a result, global governance would have to incorporate the world’s largest emerging economies. The question is whether the recent additions to BRICS+ reflect a shift in global economic dynamics to incorporate manufacturing countries such as India, China, and South Africa and oil producers such as Iran, Saudi Arabia, and the UAE. Alternatively, is the Global South attempting to replace the Western rules-based order?

The challenge in addressing these questions is reinforced by the fact that BRICS+ lacks a website with a charter and does not have a fixed secretariat. Furthermore, the criteria for joining BRICS+ are vague. British economist Lord Jim O’Neill questioned why the new members joined BRICS+. As O’Neill observed, “The decision, after all, does not appear to have been decided on any clear objective, much less economic, criteria. Why, for example, was Indonesia not asked? Why Argentina and not Mexico, or Ethiopia and not Nigeria?”

The arbitrary membership represents a historic inflection point at which BRICS+ member states are yet to determine whether their economic interests or geopolitical ambitions trump the other. Currently, economic interests supersede political interests as Brazil’s president, Luiz Inácio Lula da Silva, asserted, “We [BRICS+] do not want to be a counterpoint to the G7, G20, or the United States.” Yet, what is presented by BRICS+ as merely multipolarity is a stealth strategy to challenge U.S. primacy in the international system.

The BRICS+’ rejection of the “rule-based order” and invocation of “neocolonialism” is designed to resonate with the Global South while enabling autocrats to consolidate their rule and align more closely with one another while confronting the West.

Russian President Vladimir Putin, who was taken by surprise by the liberal democratic support for Ukraine, aspires for BRICS+ to become a trading bloc representing the “global majority.” This would make BRICS+ independent from a dollar-based exchange system and undermine global markets that trade oil in dollars. In turn, a trading block would prevent global markets from applying sanctions to countries such as Iran and Russia. To that end, China, Russia, and Brazil regard the establishment of a BRICS+ currency as a high priority.

What was originally supposed to be an economic grouping evolved into a political grouping when the Brazilian and Russian foreign ministers proposed in 2009 creating a formal BRIC political grouping. Jim O’Neill responded, “I have questioned the organization’s purpose.”

In response, White House National Security Advisor Jake Sullivan played down the bloc’s expansion plans. He said that due to BRICS+ countries’ divergent views on critical issues, he does not consider BRICS+ as “evolving into some kind of geopolitical rival to the United States or anyone else.” The fantasy of de-dollarization is challenged by the United States’ stable economy, liquid currency, and banking system to guarantee international transactions. In contrast, China maintains strict capital controls, which underpins its export-led economic growth. Furthermore, China and India are unlikely to undertake significant financial reforms to make their currency more liquid.

It is not solely the status of the dollar that offsets the political ambitions of the Global South.

India and China are geopolitical rivals, as are Iran and Saudi Arabia. Yet, despite each of the BRICS+ states maintaining diverging geopolitical interests, none of them condemned Russia’s invasion of Ukraine or Iran’s supplying drones to Russia. In September 2023, at the Asia Pacific Petroleum Conference (APPEC), Russell Hardy, Chief Executive of Vitol, noted that Russian sanctions were creating stronger bonds between BRICS+ countries. BRICS+ countries have not condemned Iran’s nuclear program, and Iran’s membership in BRICS+ may offer it leverage in future negotiations with the United States while Tehran forms closer economic and security ties with Moscow and Beijing.

As a result, the United States must continually prevent BRICS+ from in the medium to long-term coalescing into a geopolitical competitor, more broadly averting a Global South that competes with the Western order. The United States can exploit the oppositional agendas among different coalition members and reinforce strategic ties with newly joining countries such as Egypt, the UAE, Saudi Arabia, and Ethiopia by increasing technology transfer and military partnerships with them. This is especially the case with Saudi Arabia and the UAE, which are strategically hedging and diversifying their ties with China while not wanting the United States to exit the region or for Iran to become a nuclear state. Similarly, neither South Africa, Brazil, nor India, which may benefit from multipolarity, seeks to replace Western hegemony with that of China. This naturally complicates any ambitions for BRICS+ to formulate a coherent geopolitical counterpoint to the United States.

The endurance of the U.S.-led rules-based order cannot be based solely on the dollar’s liquidity but on the United States forming and deepening trade, security, and strategic ties with BRICS+’s old and new members. This may keep BRICS+ faithful to its original mission of serving as an economic engine that is integrated into the global system rather than being hijacked by autocrats seeking to replace the international system.

Harley Lippman is a board member of the United States Agency for International Development’s Partnership for Peace Fund. The views offered above are solely those of the author.

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